Ansoff's Matrix

What is the Ansoff Matrix?

  • A marketing planning model that helps a business determine its product and market strategy


Market Penetration definition:

  • A growth strategy where a business aims to sell existing products into existing markets


Market Penetration features:

  • Aim: to increase market share

  • By selling more existing products to the same target customers

  • Get existing products to the same target customers

  • Widen the range of existing products


Examples of Market Penetration Strategies:

  • Aldi: Rapid organic growth in the UK targeting the same customer base with new stores

  • Dominos: Effective use of e-commerce to encourage existing customers to buy more pizza


Evaluation:

  • Business focuses on markets and products it knows well

  • Can exploit insights on what customers want (and competitors)

  • Unlikely to need significant new market research

  • But will the strategy allow the business to achieve its growth objectives


Reasons for choosing, and value of, and the strategy:

A business will use a strategy of market penetration if one or more of the following conditions prevails:

  • There is growth in the existing market.

  • There is scope to encourage greater frequency of use among existing customers.

  • Some consumers may be encouraged to put an existing product to different uses, thus increasing demand.

  • By modifying its marketing mix, there may be potential to attract customers away from competitors, thus increasing the business's market share.


Product Development definition:

  • A growth strategy where a business aims to introduce new products into existing markets


Examples of Product Development strategies:

  • Brand extensions are common examples of product development strategies

  • Technological innovation provides significant opportunities for product development strategies


Evaluation:

  • A strategy that often plays to the strengths of an established business

  • Strong emphasis on effective market research (insights into customer needs) and successful innovation

  • A great way of exploiting the existing customer base

  • Being first to market is usually important


Reasons for choosing, and value of, and the strategy:

A business will use a strategy of product development if one or more of the following conditions prevails:

  • The scope to adapt the quality of a product in order to appeal to

    different market segments.

  • An existing product is becoming obsolete or out of date and needs to be replaced in order to avoid the loss of market share

  • An existing product has created a need or desire for complementary products

  • Market researchers reveal the potential for a new product that would serve previously unrecognised customer needs


Market Development definition:

  • A growth strategy where the business seeks to sell its existing products into new markets


Approaches to Market Development:

  • New geographical markets; e.g. exporting to emerging markets

  • New distribution channels: e.g. using e-commerce and mail order

  • Different pricing policies to attract new customers in different segments


Examples of Market Development strategies:

  • Starbuck’s expansion into China is a classic example of a successful market development strategy

  • Tesco’s market development strategy to enter the US grocery supermarket sector was a disaster for shareholders


Evaluation:

  • A logical strategy where existing markets are saturated or in decline

  • Often more risky than product development- particularly expansion into international markets

  • Existing products may not suit new markets: depends on customer needs


Reasons for choosing, and value of, and the strategy:

  • There are market segments that do not currently buy an existing product in significant numbers, but that the business believes has the potential to buy more of the product.

  • There is scope to enter new markets, such as overseas countries.

  • New markets/market segments can be reached easily using the business's existing channels.

  • The business has spare capacity and high fixed costs and therefore it would be cost-effective to increase levels of production.

  • The business's greatest strength is the reputation of its existing products.


Diversification definition:

  • The growth strategy where a business markets new products in new markets


Examples of Diversification:

  • Alphabet

  • Samsung


Examples of failed diversification:

  • Friends Reunited social networking website closed down:

    • A great example of a failed takeover and diversification: bought by ITV for £175m; sold fold £25m and then closed

  • HMV selling live music assets for £7.3m:

    • Retailer HMV diversified into the live entertainment market with £40m purchase of several live music venues. Exited the market soon after.


Benefits of Diversification:

  1. Reduced Risk - By spreading operations across multiple products, markets, and industries, a company can reduce its exposure to any one specific market, reducing the overall risk of the business. This is an economy of scale.

  2. Increased Revenue - Diversifying into new areas can create new revenue streams, helping to stabilize and grow the business.

  3. Improved Financial Performance - Diversification can lead to improved financial performance, such as increased profits, return on investment, and cash flow.

  4. Improved Market Position - Diversification can help a company improve its market position by making it less reliant on any one market or product. This can provide a competitive advantage and make the company more resilient in the face of economic or market changes.

  5. New Opportunities for Growth - Diversification can lead to new opportunities for growth and expansion, helping a company to continue to grow and evolve over time.


Evaluation:

  • Inherently risk strategy:

    • No direct experience with the product or market

    • Few economies of scale (initially)

    • However, if successful, the overall risk of the business is spread

  • Approaches to diversification:

    • Innovation and Research and Development: develop new solutions

    • Acquire an existing business in the market

    • Extend an existing brand into the new market


Reasons for choosing, and value of, and the strategy:

A business will use a strategy of diversification if one or more of the following conditions prevails:

  • Its existing products and/or markets are in decline and likely to remain so.

  • Its existing markets are saturated and therefore there is no scope for expansion within them.

  • Senior managers of the business want to avoid complacency and so wish to give the business a new challenge.